Construction prices are soaring, killing off the housing accord.
ANALYSIS
It’s time for Albo to come out and admit the national housing accord is nothing but a pipe dream.
We are about as much chance of hitting the target of 1.2 million new homes built over five years as I am of reaching into my wardrobe and ending up in Narnia.
The performance so far over the period, which began in mid-2024 and will go through until mid-2029, has been like my favourite football team. Off to a shaky start and then progressively worse, until finally descending into the diabolical.
The first full year of the accord yielded just 174,000 homes out of the necessary 240,000 to keep pace. That’s 27 per cent below target in just one year.
If the nation kept up with that run rate, we’d end up with 870,000 homes. That’s a shortfall of 330,000.
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And that was as of June last year, when interest rates were coming down and construction was significantly cheaper.
The way things are looking now, however, we should be celebrating if we even hit that number.
Contractors are looking for a way out of jobs. Picture: Getty Images
Construction costs are soaring again.
The latest Consumer Price Index (CPI) figures released by the ABS showed that housing costs rose 7.3 per cent in the year to February. That’s about double the overall CPI inflation figure of 3.7 per cent.
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Housing costs predominantly reflect construction costs and rent. Those costs rose 0.7 per cent over the month alone. Even as other CPI measures are relatively flat, housing is leaping further upwards every month.
And the full effects of the Iran conflict have not even begun to appear in monthly CPI data yet. Imagine what housing inflation is going to look like once oil shortages filter through the entire industry.
Two rate rises this year, and the looming spectre of more to come, have made borrowing money to spend on new housing much harder.
Before interest rates started rising, there was an uptick in housing approvals, which sounds positive.
But an approval is not a completion. It’s no guarantee that the construction will occur at all.
Some people sell their properties with a DA in place to entice buyers looking to knock down and rebuild, for example. Others may run out of money before any work is commenced, or even during the build.
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Rate rises have made borrowing to build much tougher. Picture: Gaye Gerard
Reportedly there are many building contractors looking for ways out of projects, using ‘force majeure’- a contractual clause allowing them to withdraw from jobs in extreme circumstances, such as war.
That doesn’t bode well for an increase in sector productivity.
One case study that illustrates the gap between approvals and finished products is in Western Sydney, where a new residential research report from Ray White Commercial (RWC) has highlighted a “critical failure” to convert approvals into construction, which is “deepening the region’s housing crisis.”
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The report notes that the Western Sydney region is expected to absorb nearly 59,000 new residents each year, through to 2041, driving an ongoing need of more than 25,000 new homes a year.
Yet only 5484 dwellings are under construction.
RWC Western Sydney’s managing director Peter Vines said the “housing challenge remains one of activation, not aspiration”.
“The pipeline is there. The approvals are there,” Mr Vines said. “What’s missing is the ability to convert those approvals into homes at the pace the region actually requires.”
Those approvals won’t be there for long, as rates continue to rise. Couple that with the dire current construction situation and the fact it will get worse from here. We’ll be lucky to make it halfway to the 1.2 million home target.
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